New America Foundation: Let the Sins of Grad PLUS Be Visited Upon IBR

I’ll try to go quickly through the New America Foundation’s (NAF’s) Jason Delisle’s and Alexander Holt’s Washington Postopinion piece from Friday. Reacting to news that the president’s budget forecasts income-based repayment programs (IBR) will cost the government an additional $21.8 billion, the authors argue that “too much” of it is attributable the administration’s changes to IBR, i.e. reducing monthly payments even more and accelerating loan forgiveness to 20 years from 25. Their article has many problems.

One, Delisle and Holt don’t provide evidence that the $21.8 billion comes from the changes to IBR. They’re just conjecturing. My hunch is that the additional costs are mainly attributable to the changes in the budget’s model that don’t anticipate as much job growth as before—or just increased participation in IBR. Without this evidence, the rest of Delisle’s and Holt’s article is just righteous huffing.

Two, the authors use this pretext to slide into their grad-students-are-abusing-IBR claim the NAF has been making for a few years now. This argument is problematic because the problem isn’t IBR so much as the Grad PLUS Loan Program, which the authors understand is unlimited and to their credit have advocated abolishing elsewhere. That’s all fine and good, but if the problem is Grad PLUS, then it’s not IBR, and the authors should focus on that instead. More on this point below.

Three, the grad-students-are-abusing-IBR claim has never been substantiated either. The NAF has always trotted it out in hypotheticals without doing the actual research. How many (and what percentage of) graduate debtors are (a) on IBR and (b) earn high enough incomes that could allow repayment under 25-year or consolidated repayment plans without compromising their living standards? Also, how many grad debtors are on IBR but are not earning enough to repay their loans under the older repayment plans?

These questions are crucial because until they’re answered those of us sitting at the feet of the East Coast think-tank elite can’t weigh how many people unfairly benefit from the changes to IBR against those who do not. If every unfair IBR beneficiary is canceled out by dozens of debtors who will never repay their loans in 25 or 20 years, then it’s safe to say that the changes to IBR are useful and the adverse consequences minimal. (And it’s not like the IBR changes have influenced people’s graduate school enrollment behaviors as law school applicants are still falling.) In the end, Delisle’s and Holt’s arguments are really just revamped versions of welfare queen fear-mongering.

Four, Delisle and Holt do not regain any sympathy with their hypothetical graduate debtor, Robert, who finishes law school with $150,000 in debt and earns $70,000 per year. Here are the problems with Robert:

(a) For those of us who’ve done the research, Robert’s debt is plausible, but his income is not. Robert earns well over the median salary reported to NALP in 2013 ($62,467). Assuming that all non-reporting graduates are making less than the median, which I believe is fair, Robert is above the top 23 percent in law graduate earnings. He is quite atypical. The true median, which would include graduates working part-time and the 12.3 percent who were unemployed (and matter since we’re talking about debt repayment), is much, much lower. It’s likely many of them will never repay their loans. These people will benefit from the PAYE changes, but the NAF ignores them.

(b) The authors then fashion out of Robert’s rib a wife, who earns $80,000 per year. With an annual household/family income of $150,000, readers should recognize that this partnership is in the top 10 percent by household income. Is this common for graduate debtors? Probably, but again the authors don’t say.

(c) Delisle and Holt proceed to criticize IBR for not taking spousal incomes into account, that only 1.9 percent of Robert’s household’s/family’s income is going to his student loans. Are you shocked? Well, the response is, so what? Robert’s wife didn’t sign his master promissory notes any more than she would his gambling debts. If Robert wants to leave work to raise their kids, for example, doesn’t that imply that his wife will essentially assume his debts? Would the NAF say this if Robert were Roberta? How would unmarried Robert feel if he had to tell his bride-to-be that she’d be partly on the hook for his student loans if they got married? Again, what if Robert were Roberta, who would be more likely to take time off to raise children?

(d) The authors’ hypothetical is only as outrageous as the lopsided assumptions they bake into it. It’s one thing to say that Robert, unusual though he is, benefits more from the Obama administration’s changes to IBR than before. But it’s a rhetorical foul altogether to throw in a wife, whose high earnings Robert largely has no power over, and then blame IBR for the result. Delisle and Holt could just as easily give Robert’s parents multimillion-dollar lottery tickets or 5 percent of Maine’s landmass, but it would still have little relevance for IBR as a policy.

Five, the authors repeat that graduate debtors are the unfair beneficiaries of the administration’s changes to IBR, that they’re half of all IBR participants (unsurprising: they have undergraduate debts too), that they have higher incomes and are less likely to be unemployed than undergrad (or non-grad) debtors. Again, no income data on IBR participants is given, so Delisle’s and Holt’s IBR welfare queens are all speculative. Now, I’m sure some exist, but the NAF needs to show us the bodies and carefully tell us whether they’re worth less than the number of underemployed graduate debtors who won’t be able to repay their loans.

Six, even if they do that, all their talk of IBR’s “loan-forgiveness benefits” is really a problem with Grad PLUS loans, not IBR. As I wrote last week, IBR without Grad PLUS loans would be much more innocuous. It’s one thing for Delisle and Holt to make poor arguments with unrepresentative examples, but I question their credibility if they’re going to attack IBR, which I think we all agree was never crafted with Grad PLUS loans in mind, instead of the loan program itself. Why not attack the problem at its source? What’s so special about IBR, then? Nor does it help that they bait their readers with the $21.8 billion IBR shortfall and then switch it with the changes to IBR without evidence. For all their elegant, mathematical—and probably costly—policy papers, the NAF’s results almost always have zero external validity. Like, if I didn’t know any better, I’d say those folks had some kind of ulterior, partisan motive…

Seven, and finally, at the beginning of their article the authors characterize the federal loan program as “an implicit contract: Students get loans to go to college at reasonable interest rates, with no previous credit history required, but when they graduate, they [and their high-income spouses, apparently] have to pay them back. But that agreement is shifting.”

In their dreams. The “implicit agreement” was that the loans would make debtors more productive workers so they could fill higher-paying jobs that required additional skills. Little of this has turned out to be true: There’s no good evidence that widespread college education is raising our national income, and the government has pretty much reneged on its jobs promises.

As far as contracts go, this one has been drafted in favor of the government. When its underlying assumptions are true, everyone wins, but when they’re not, the government won’t be held accountable for self-serving research, false promises, and reckless lending. Instead, attempts to help the debtors will face resistance by people like Delisle and Holt, who will howl at all the alleged benefits the lucky-duckies are getting—and right now we’re only talking about grad student debt! Consequently, you should expect the endgame for all this unpayable student loan debt to be really, really acrimonious.

8 comments

Higher educational markets are free markets, particularly the niche, law school market.

Congress says we’re borrowing excessively when it set the amount it would lend at the “full cost of attendance” set by…a school. I don’t remember getting a say on price.

It’s our fault, after all. We chose to go to *law school*…full stop. I mean it’s not like we were ***required*** to go to law school in order to be allowed to sit for the meritocracy bar or something. It’s not like law school is a license requirement or something.

It’s just that we like regulatory capture, ABA accredited price-fixing cartels, pervasive consumer fraud, wages offered by public entities including THE Dept. of Justice at…zero, because attorneys are not covered by the minimum wage requirements of the Fair Labor Standards Act…

Leichter, if you’re confused as to why Delisle and NAF only ever harp on the back-end of the lending system and make fantastical and unsupported arguments about IBR, consider who funds NAF.

If one did something as tepid as cap Grad PLUS loans, schools take a revenue hit.

If someone did something as bold as end IBR, an unstoppable wave of defaults would rip the veil back on the DOE’s rotten portfolio and **perhaps** with the exception of HSY, close every law school in the country in 30 days…c.f. COHORT DEFAULT RATE.
They were supposed to share risk…

The endgame for unpayable student debt is ALREADY acrimonious — why do you think there are no statutes of limitations, bankruptcy limited to the near-death-and-blind Brunner Test, and no refinancing rights? I wish I’d borrowed money from Tony Soprano. One might have to suffer a broken leg or two but then it’s over and you go on with your life.

Time yet again to remind readers that 1) DeLisle was a former staffer of erstwhile Congressman Thomas Petri (R-WI), who has been the most vocal opponent of IBR and PSLF since their introduction in 2007, 2) DeLisle has a highly useless six-figure Masters in Public Policy from GW yet advocates for the repeal of PSLF, and 3) the New America Foundation has received about $3 million in funding from the Lumina Foundation since 2008, that $1.5 billion higher ed foundation that was set up by two private student lending companies, has multiple ex-Sallie execs on its board and in its C-Level offices, and who advocates endlessly for the increased production of student loans, I mean college students.

GradPLUS may well need to be curtailed in some way, but let’s get real: pretty much all of the voices calling for the end of the program aren’t trying to curb grad school costs so much as they are trying to advocate for a more conducive environment for private student lending. SLM et al would love to be able to throw $100k to $200k at law and business students, bundle those loans into SLABS, and sell them to pension funds on Wall Street. And as pretty much everyone reading LSTB knows, private student loans are far more dangerous for bubble-prone professions (like lawyers) than GradPLUS loans.

“…let’s get real: pretty much all of the voices calling for the end of the program aren’t trying to curb grad school costs so much as they are trying to advocate for a more conducive environment for private student lending.”

AMEN. Anyone who opposes restoring bankruptcy to private student loans is not interested in students or solving the issue of price inflation caused by BAD LOANS.

SLABS got bailed out by the Federal Reserve in 2008. RE-INFLATE THE DEFLATING BAD CREDIT BUBBLE. That’s their one trick.

Here’s their data on the Term Asset-Backed Securities Loan Facility and SLABS:

Liberty Street does make one interesting query: how will debtors behave in the future?

I can tell them how I’ll behave: like my government destroyed a marketplace, created a caste system in the law, tried to so ruin the lives of her victims in what amounts to many, many instances of attempted murder.

This system killed one of my best friends who had the misfortune to be poor, in law school debt, and come down with a serious genetic illness.

No family, no money, and no Social Security Disability Insurance to keep her entirely-disabled-through-no-fault-of-her-own body and soul off the streets…that had to be garnished, you see!

So, I’ll act like the people that want their principal and interest back are murderous liars, because they are. Fuck ’em.